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FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-7190
------
IMPERIAL INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-1428
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of November 4, 2002: 9,235,434
Total number of pages contained in this document: 30
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations
Nine Months and Three Months Ended September
30, 2002 and 2001 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 5-6
Notes to Consolidated Financial Statements 7-18
Management's Discussion and Analysis of Results 19-25
Of Operations and Financial Condition
Market Risk 25-26
Controls and Procedures 26
Part II. Other Information and Signatures
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of 27
Security Holders
Item 6. Exhibits and Reports on Form 8 - K 28
Signatures 29
Certification of Report 30
2
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2002 2001
------------ ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 1,510,000 $ 1,368,000
Trade accounts receivable (less
allowance for doubtful accounts of
$491,000 and $453,000 at September 30, 2002
and December 31, 2001, respectively) 4,858,000 4,419,000
Inventories 3,923,000 3,807,000
Deferred income taxes 479,000 523,000
Other current assets 371,000 294,000
------------ ------------
Total current assets 11,141,000 10,411,000
------------ ------------
Property, plant and equipment, at cost 4,415,000 4,197,000
Less accumulated depreciation (2,036,000) (1,749,000)
------------ ------------
Net property, plant and equipment 2,379,000 2,448,000
------------ ------------
Deferred income taxes 483,000 327,000
------------ ------------
Excess cost of investment over net
assets acquired -- 1,272,000
------------ ------------
Other assets 154,000 133,000
------------ ------------
$ 14,157,000 $ 14,591,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 4,282,000 $ 4,335,000
Current portion of long-term debt 751,000 669,000
Accounts payable 2,368,000 1,906,000
Obligation for appraisal rights 877,000 --
Payable to stockholders 262,000 286,000
Accrued expenses and other liabilities 741,000 735,000
------------ ------------
Total current liabilities 9,281,000 7,931,000
------------ ------------
Long-term debt, less current maturities 1,012,000 1,440,000
------------ ------------
Obligation for appraisal rights -- 877,000
------------ ------------
Commitments and contingencies (Note 10) -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value
40,000,000 shares authorized; 9,235,434 and
9,220,434 issued at September 30, 2002
and December 2001, respectively 92,000 92,000
Additional paid-in-capital 13,924,000 13,920,000
Accumulated deficit (10,152,000) (9,669,000)
------------ ------------
Total stockholders' equity 3,864,000 4,343,000
------------ ------------
$ 14,157,000 $ 14,591,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net Sales $ 27,575,000 $ 30,481,000 $ 9,423,000 $ 9,556,000
Cost of Sales 18,892,000 20,972,000 6,450,000 6,423,000
------------ ------------ ------------ ------------
Gross profit 8,683,000 9,509,000 2,973,000 3,133,000
Selling, general and
administrative expenses 7,806,000 8,531,000 2,634,000 2,772,000
------------ ------------ ------------ ------------
Operating income 877,000 978,000 339,000 361,000
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (403,000) (646,000) (135,000) (197,000)
Miscellaneous income 203,000 116,000 31,000 64,000
------------ ------------ ------------ ------------
(200,000) (530,000) (104,000) (133,000)
------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of change in accounting
principle for SFAS 142 677,000 448,000 235,000 228,000
Income tax expense (371,000) (166,000) (82,000) (89,000)
------------ ------------ ------------ ------------
Net income before cumulative effect
of change in accounting principle
for SFAS 142 306,000 282,000 153,000 139,000
Cumulative effect of change in
accounting principle for SFAS 142,
net of tax benefit (Note 4) (789,000) -- -- --
------------ ------------ ------------ ------------
Net (loss) income $ (483,000) $ 282,000 $ 153,000 $ 139,000
============ ============ ============ ============
Basic earnings per share:
Net income before cumulative effect
of change in accounting principle $ 0.03 $ 0.03 $ 0.02 $ 0.02
Cumulative effect of change in
accounting principle (0.08) -- -- --
------------ ------------ ------------ ------------
Net (loss) income $ (0.05) $ 0.03 $ 0.02 $ 0.02
============ ============ ============ ============
Diluted earnings per share:
Net income before cumulative effect
of change in accounting principle $ 0.03 $ 0.03 $ 0.02 $ 0.02
Cumulative effect of change in
accounting principle (0.08) -- -- --
------------ ------------ ------------ ------------
Net (loss) income $ (0.05) $ 0.03 $ 0.02 $ 0.02
============ ============ ============ ============
Weighted average shares outstanding 9,226,808 9,211,941 9,235,434 9,220,434
============ ============ ============ ============
Weighted average shares and
potentially dilutive shares outstanding 9,226,808 9,213,138 9,235,434 9,220,434
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
----------------------------
2002 2001
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net (loss) income $ (483,000) $ 282,000
----------- -----------
Adjustments to reconcile net income
to net cash (used in) provided by:
Cumulative effect of change in accounting principle 789,000 --
Depreciation 340,000 377,000
Amortization 24,000 56,000
Debt issue discount -- 44,000
Provision for doubtful accounts 151,000 225,000
Provision for income tax 371,000 151,000
Compensation expense-issuance of stock 4,000 5,000
(Gain)loss on disposal of property
and equipment (4,000) 3,000
Other (6,000) --
(Increase) decrease in:
Accounts receivable (590,000) (94,000)
Inventory (116,000) (70,000)
Prepaid expenses and other assets (116,000) (256,000)
Increase (decrease) in:
Accounts payable 462,000 137,000
Accrued expenses and other liabilities (18,000) (138,000)
----------- -----------
Total adjustments to net income 1,291,000 440,000
----------- -----------
Net cash provided by
operating activities: 808,000 722,000
----------- -----------
Cash flows from investing activities:
Purchases of property, plant
and equipment (301,000) (53,000)
Proceeds received from sale of
property and equipment 34,000 38,000
Payment on note payable for acquisitions -- (100,000)
----------- -----------
Net cash (used in) investing activities (267,000) (115,000)
----------- -----------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net (53,000) (233,000)
Proceeds from issuance of long-term debt 210,000 8,000
Repayment of long-term debt (556,000) (600,000)
----------- -----------
Net cash (used in)
financing activities (399,000) (825,000)
----------- -----------
- continued -
The accompanying notes are an integral part of the consolidated financial
statements.
5
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-continued-
Nine Months Ended
September 30,
----------- -----------
2002 2001
----------- -----------
(Unaudited)
Net increase(decrease)in cash and
cash equivalents 142,000 (218,000)
Cash and cash equivalents beginning of period 1,368,000 1,853,000
----------- -----------
Cash and cash equivalents end of period $ 1,510,000 $ 1,635,000
=========== ===========
Non-cash transactions:
Issuance of 15,000 shares of common stock
to an employee of the Company
in 2002 and 2001 $ 4,000 $ 5,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and footnotes required by
auditing standards generally accepted in the United States of America
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30,
2002 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2002. The significant accounting
principles used in the preparation of these unaudited interim
consolidated financial statements are the same as those used in the
preparation of the annual audited consolidated financial statements.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finish wall coatings
and mortar products for the construction industry, as well as the
purchasing and sale of other building materials from other
manufacturers. Sales of the Company's products are made to customers
primarily in Florida and the Southeastern United States through
distributors and company-owned distribution facilities.
a) Basis of presentation
---------------------
The consolidated financial statements contain the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
b) Concentration of Credit Risk
----------------------------
Concentration of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising
the Company's customer base. Trade accounts receivable represent
amounts due from building materials dealers, contactors and
sub-contractors, located principally in the Southeastern United States
who have purchased products on an unsecured open account basis. At
September 30, 2002, accounts aggregating
7
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
$673,000, or approximately 12.6% of total gross trade accounts
receivable, were deemed to be ineligible for borrowing purposes under
the Company's borrowing agreement with its commercial lender, compared
to $669,000, or approximately 13.7%, of total gross trade receivables
outstanding at December 31, 2001. See Note (5). The allowance for
doubtful accounts at September 30, 2002 of $491,000 is considered
sufficient to absorb any losses which may arise from uncollectible
accounts receivable.
The Company places its cash with commercial banks. At
September 30, 2002, the Company has cash balances with banks in excess
of Federal Deposit Insurance Corporation insured limits. Management
believes the credit risk related to these deposits is minimal.
c) Inventories
-----------
Inventories are stated at the lower of cost or market (net
realizable value), on a first-in, first-out basis. Finished goods
include the cost of raw materials, freight in, direct labor and
overhead.
d) Property, plant and equipment
-----------------------------
Property, plant and equipment is stated at cost, less
accumulated depreciation. Depreciation is computed on the straight-line
basis over the estimated useful lives of the depreciable assets.
Expenditures for maintenance and repairs are charged to expense as
incurred, while expenditures which extend the useful life of assets are
capitalized. Differences between the proceeds received on the sale of
property, plant and equipment and the carrying value of the assets on
the date of sale is credited to or charged against net income.
e) Excess Cost of Investment Over Net Assets Acquired and Other
------------------------------------------------------------
Intangible Assets
-----------------
Licenses, trademarks and deferred financing costs are
amortized on the straight-line basis over the estimated useful lives of
the licenses and trademarks, or over the term of the related financing.
Excess cost of investment over net assets acquired was amortized using
the straight-line method over 40 years until December 31, 2001 and was
net of $57,000 accumulated amortization at December 31, 2001. (See Note
4 for goodwill accounting policy adopted January 1, 2002).
8
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
f) Income Taxes
------------
The Company utilizes the liability method for determining its
income taxes. Under this method, deferred taxes and liabilities are
recognized for the expected future tax consequences of events that have
been recognized in the consolidated financial statements or income tax
returns. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be realized or settled;
valuation allowances are provided against assets that are not likely to
be realized.
g) Earnings per share of stock
---------------------------
Basic earnings per share is computed by dividing net income,
by the weighted-average number of shares of common stock outstanding
each year. Diluted earnings per share is computed by dividing net
income by the weighted-average number of shares of common stock and
common stock equivalents outstanding during each year. (See Note (9) -
Earnings Per Share).
h) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those
highly liquid investments with original maturities of three months or
less, and are stated at cost. Included in cash and cash equivalents at
September 30, 2002 and December 31, 2001 are short term time deposits
of $122,000 and $121,000, respectively. Also included in cash and cash
equivalents at September 30, 2002 and December 31, 2001 are $770,000
and $698,000,respectively, of customer payments that are required to be
remitted to the Company's commercial lender upon their bank clearance
under the terms of the Company's line of credit. Such amounts will
reduce the outstanding balance on the line of credit, resulting in
greater borrowing availability.
i) Revenue recognition policy
--------------------------
Revenue from sales transactions, net of discounts and
allowances, is recorded upon delivery of inventory to the customer.
j) Stock based compensation
------------------------
The Company measures compensation expense related to the grant
of stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to
9
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
Employees," under which compensation expense, if any, is generally
based on the difference between the exercise price of an option, or the
amount paid for an award, and the market price or fair value of the
underlying common stock at the date of the award.
k) Accounting estimates
--------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
l) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments
principally notes payable and obligation for appraisal rights,
approximates fair value based on discounted cash flows and because the
borrowing rates are similar to the current rates offered to the
Company.
m) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the nine month
periods ended September 30, 2002 and 2001, the Company has determined
that it continues to operate in a single operating segment.
n) New Accounting Pronouncements
-----------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143, which is effective for
fiscal years beginning after June 15, 2002, addresses financial
accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement
costs. The Company's adoption of this standard is not expected to have
a material effect on its financial statements.
In October 2001, the Financial Accounting Standards Board
issued "Accounting for the Impairment of Disposal of Long-Lived Assets"
(SFAS 144"), which is effective for fiscal years beginning after
December 15, 2001. SFAS 144 addresses accounting
10
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
n) New Accounting Pronouncements (continued)
-----------------------------
and reporting for the impairment or disposal of long-lived assets. This
statement superseded SFAS 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". The Company's adoption of SFAS
144 on January 1, 2002 did not have a material effect on its
consolidated financial statements.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS 145 rescinds the automatic treatment of
gains or losses from extinguishment of debt as extraordinary unless
they meet the criteria for extraordinary items as outlined in APB
Opinion No. 30, Reporting the Results of Operations, Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. In
addition, SFAS 145 also requires sale-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions and makes various technical corrections to
existing pronouncements. The provisions of SFAS 145 related to the
rescission of FASB Statement 4 are effective for fiscal years beginning
after May 15, 2002, with early adoption encouraged. All other
provisions of SFAS 145 are effective for transactions occurring after
May 15, 2002, with early adoption encouraged. The Company does not
anticipate SFAS 145 having a material effect on their financial
statements.
In June 2002, the FASB issued Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (SFAS 146) and
nullifies EITF Issue No. 94-3. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when
the liability is incurred, whereas EITF No. 94-3 had recognized the
liability at the date of an entity's commitment to an exit plan. The
Company is required to adopt the provisions of SFAS 146 effective for
exit or disposal activities initiated after December 31, 2002. The
Company is currently evaluating the impact of adoption of this
statement.
(3) Inventories
-----------
At September 30, 2002 and December 31, 2001 inventories
consisted of:
2002 2001
----------- -----------
Raw Materials $ 555,000 $ 465,000
Finished Goods 3,158,000 3,062,000
Packaging materials 210,000 280,000
----------- -----------
$ 3,923,000 $ 3,807,000
----------- -----------
11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets
------------------------------------
Effective January 1, 2002 the Company adopted SFAS 141,
"Business Combinations," and SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 141 was issued by the FASB in June 2001. SFAS 141
requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also
specifies the types of acquired intangible assets that are required to
be recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. The
Company's adoption of this standard did not have any effect on its
accounting for prior business combinations.
SFAS 142 requires that goodwill no longer be amortized, but
instead be tested for impairment at least annually. SFAS 142 requires
recognized intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Any recognized intangible assets
determined to have an indefinite useful life are not amortized, but
instead tested for impairment in accordance with the standard until its
life is determined to no longer be indefinite. If goodwill amortization
had not been recorded in the first nine months and third quarter of
2001, net income would have been $301,000 and $145,000, respectively,
with no impact on earnings per share.
In the second quarter of 2002, the Company completed its SFAS
142 transitional impairment review and determined that the goodwill
("excess cost of investment over net assets acquired") of $1,272,000
associated with acquisitions of several distribution facilities in 2000
should be reduced to $0. The impairment is the result of the
under-performance of several of the acquired distribution facilities.
The fair value of the distribution reporting unit was determined using
the present value of expected future cash flows and other valuation
measures.
The $1,272,000 ($789,000 net of related tax benefit) non-cash
charge is reflected as a cumulative effect of an accounting change in
the accompanying Consolidated Statements of Operations for the
six-month period ended June 30, 2002. In accordance with SFAS 142 and
SFAS 3, "Reporting Accounting Changes in Interim Financial Statements"
("SFAS 3"), when a transitional impairment loss for goodwill
(cumulative effect type accounting change) is measured in other than
the first interim reporting period, it shall be recognized in the first
interim period irrespective
12
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets (continued)
-------------------------------------
of the period in which it is measured. The impact on the three-month
period ended March 31, 2002 is as follows:
Three Months Ended March 31, 2002
-------------------------------------------------------
Net Income/(Loss) Basic EPS Diluted EPS
------------------ ----------- -----------
Reported Net Income $ 122,000 $ 0.01 $ 0.01
Less: Impairment Charge $ (789,000) $ (0.08) $ (0.08)
Adjusted Net Loss $ (667,000) $ (0.07) $ (0.07)
(5) Notes Payable
-------------
At September 30, 2002 and December 31, 2001, notes payable
represent amounts outstanding under a $6,000,000 line of credit from a
commercial lender to the Company's subsidiaries. The line of credit is
collateralized by the subsidiaries' accounts receivable and inventory,
bears interest at prime rate plus 1/2% (5.25% at September 30, 2002),
expires June 19, 2003, and is subject to annual review.
At September 30, 2002, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$5,152,000, of which $4,282,000 was outstanding. The average amounts
outstanding for the nine month periods ended September 30, 2002 and
2001 were $4,760,000 and $5,046,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
---------------------------------------------------------
Included in long-term debt at September 30, 2002, are four
mortgage loans, collateralized by real property, in the aggregate
amount of $867,000, less current installments aggregating $259,000.
During 2000, the Company acquired certain assets and assumed
certain liabilities of seven building materials distributors in which
it issued $850,000 uncollateralized 8% promissory notes as partial
consideration. At September 30, 2002, the aggregate remaining notes of
$216,000 were classified as a current liability.
Other long-term debt in the aggregate amount of $680,000, less
current installments of $276,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from 4.89%
to 10.83%.
13
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Income Taxes
------------
At September 30, 2002, the net deferred tax asset of
approximately $962,000 consisted mostly of the tax effect of net
operating loss carryforwards of $353,000 and the tax effect of the
goodwill written off of $534,000 reflected in the $353,000 is the
effect of a second quarter 2002 valuation allowance recorded by the
Company of $319,000 against the net operating loss carryforwards for
amounts expected to expire. The operating loss carryforwards expire in
varying amounts through 2009.
In the nine months ended September 30, 2002 and 2001, the
Company recognized an income tax benefit of $112,000 and tax expense of
$166,000, respectively.
(8) Capital Stock
-------------
(a) Common Stock
------------
At September 30, 2002, the Company had outstanding 9,235,434
shares of common stock with a $.01 par value per share ("Common
Stock"). The holders of common stock are entitled to one vote per share
on all matters, voting together with the holders of preferred stock, if
any. In the event of liquidation, holders of common stock are entitled
to share ratably in all the remaining assets of the Company, if any,
after satisfaction of the liabilities of the Company and the
preferential rights of the holders of outstanding preferred stock, if
any.
In June 2002 and 2001, the Company issued 15,000 shares of
common stock as incentive compensation to an employee pursuant to the
terms of an employment agreement.
(b) Preferred Stock
---------------
The authorized preferred stock of the Company consists of
5,000,000 shares, $.01 par value per share. The preferred stock is
issuable in series, each of which may vary, as determined by the Board
of Directors, as to the designation and number of shares in such
series, the voting power of the holders thereof, the dividend rate,
redemption terms and prices, the voluntary and involuntary liquidation
preferences, and the conversion rights and sinking fund requirements,
if any, of such series. At September 30, 2002 and December 31, 2001,
there were no shares of preferred stock outstanding.
(c) Warrants
--------
At September 30, 2002, the Company had warrants outstanding to
purchase 150,000 shares of the Company's common stock (the "Warrants").
Each Warrant entitles the holder to purchase one share at $.38 per
share until December 31, 2003.
14
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(d) Stock Option Plans
------------------
The Company has two stock option plans, the Directors' Stock
Option Plan and the 1999 Employee Stock Option Plan (collectively, the
"1999 Plans"). The 1999 Plans provide for options to be granted at
generally no less than the fair market value of the Company's stock at
the grant date. Options granted under the 1999 Plans have a term of up
to 10 years and are exercisable six months form the grant date. The
1999 Plans are administered by the Compensation and Stock Option
Committee (the "Committee"), which is comprised of three outside
directors. The Committee determines who is eligible to participate and
the number of shares for which options are to be granted. A total of
600,000 and 200,000 shares are reserved for issuance under the Employee
and Directors' Plans, respectively.
During the nine months ended September 30, 2002 the Company
granted options to purchase 80,000 shares at $.22 per share for a five
year period consisting of 40,000 shares under the Employee Stock Option
Plan(the "Employee Plan")and 40,000 shares under the Directors' Stock
Option Plan (the "Directors' Plan"). As of September 30, 2002, options
for 360,000 shares were available for future grants under the Employee
Plan. No shares are currently available for future grant under the
Directors' Plan.
(9) Earnings Per Share
------------------
Below is a reconciliation between basic and diluted earnings
per common share under FAS 128 for the nine months and three months
ended September 30, 2002 and 2001 (in thousands except per share
amounts):
Nine Months
-----------
2002 2001
---------------------------- --------------------------
Per Per
Loss Shares Share Income Shares Share
------ ------ ----- ------ ------ ----
Net (loss) income $ (483) $ 282
Basic earnings
per share $ (483) 9,227 $(.05) $ 282 9,212 $.03
------ ------ ----- ------ ------ ----
Effect of dilutive
securities:
Options/Warrants -- -- -- -- 1 --
------ ------ ----- ------ ------ ----
Diluted earnings
per common share $ (483) 9,227 $(.05) $ 282 9,213 $.03
------ ------ ----- ------ ------ ----
15
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
Three Months
------------
2002 2001
-------------------------- --------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ---- ------ ------ ----
Net income $ 153 $ 139
Basic earnings
per share $ 153 9,235 $.02 $ 139 9,220 $.02
------ ------ ---- ------ ------ ----
Effect of dilutive
securities:
Options/Warrants -- -- -- -- -- --
------ ------ ---- ------ ------ ----
Diluted earnings
per common share $ 153 9,235 $.02 $ 139 9,220 $.02
------ ------ ---- ------ ------ ----
For the nine months ended September 30, 2002 and 2001, 490,000
and 280,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive. For the quarter ended September 30, 2002 and 2001,
570,000 and 430,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive.
(10) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of November 1, 2002, one of the Company's subsidiaries,
Acrocrete, Inc., and other parties are defendants in 38 lawsuits
pending in various Southeastern states, by homeowners, homeowners
associations, contractors and subcontractors, or their insurance
companies, claiming moisture intrusion damages on single and
multi-family residences. The Company's insurance carriers have accepted
coverage for 37 of these claims and are providing a defense under a
reservation of rights. Acrocrete expects its insurance carriers to
accept coverage for the other 1 lawsuit. Acrocrete is vigorously
defending all of these cases and believes it has meritorious defenses,
counter-claims and claims against third parties. Acrocrete is unable to
determine the exact extent of its exposure or outcome of this
litigation.
The allegations of defects in synthetic stucco wall systems
are not restricted to Acrocrete products but rather are an
industry-wide issue. There has never been any defect proven against
Acrocrete. The alleged failure of these products to perform has
generally been linked to improper application and the failure of
adjacent building materials such as windows, roof flashing, decking and
the lack of caulking.
On June 15, 1999, another of the Company's subsidiaries,
Premix, was served with a complaint captioned Mirage Condominium
Association, Inc. v. Premix Marbletite Manufacturing Co., et al., in
Miami-Dade County Florida. The lawsuit raises a number of
16
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
allegations against twelve separate defendants involving alleged
construction defects. Plaintiff has alleged only one count against
Premix, which claims that certain materials, purportedly provided by
Premix to the Developer / Contractor and used to anchor balcony
railings to the structure were defective. The Company's insurance
carriers have not made a decision regarding coverage to date, but have
retained counsel on behalf of Premix and are paying defense costs. The
Company expects the insurance company to eventually accept coverage.
Premix is unable to determine the exact extent of its exposure or the
outcome of this litigation.
Premix and Acrocrete are both engaged in other legal actions
and claims arising in the ordinary course of its business, none of
which are believed to be material to the Company.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's formerly issued preferred stock filed a
petition for appraisal in the Delaware Chancery Court to determine the
fair value of their shares at the effective date of Merger, exclusive
of any element of value attributable to the merger. The Company
recorded $877,000 in the accompanying consolidated balance sheets at
September 30, 2002 and December 31, 2001, as an estimate for the
obligation for appraisal rights based on the estimated fair value of
the consideration they could have received had they not elected
dissenters' rights. The Chancery Court may determine fair value is
greater than an aggregate of $877,000. A trial for the appraisal rights
was held in the Chancery Court of Delaware in June 2002. As of the date
hereof, the trial court has not issued a ruling. The Company expects a
judicial determination requiring the Company to make payment to the
Dissenting Shareholders in the second quarter of 2003. At September 30,
2002 the obligation for appraisal rights was classified as a current
liability.
(b) Lease Commitments
-----------------
At September 30, 2002, certain property, plant and equipment
were under lease by the Company under long-term leases. The Company
will pay aggregate annual rent of approximately $1,037,000 for its
current operating leases. The leases expire at various dates ranging
from December 31, 2002 to August 31, 2009. Comparable properties at
equivalent rentals are available for replacement of these facilities if
any leases are not extended. The Company does not expect to incur any
material relocation expenses.
17
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(11) Recent Event
------------
On July 19, 2002 at the Company's Annual Meeting of
Shareholders, the Company's Shareholders approved a proposal for a one
for five reverse common stock split ("Reverse Stock Split"). Pursuant
to the terms of the proposal, the Reverse Stock Split was to become
effective upon filing an appropriate certificate with the Secretary of
State of Delaware. Notwithstanding the approval of the Reverse Stock
Split, the Board of Directors reserved the right, without further
action by the Shareholders, to elect not to proceed with the Reverse
Stock Split if at any time prior to filing such certificate with the
State of Delaware, the Board of Directors, in its sole discretion,
determined that it was no longer in the best interests of the Company
and its stockholders. In addition, the Board of Directors reserved the
right to delay the Reverse Stock Split for up to twelve months
following the stockholder approval.
The Board of Directors determined it was in the best interest
of the Company to postpone the implementation of the Reverse Stock
Split until a future date to be determined by the Board.
18
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
General
-------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of Florida, Georgia, Mississippi and Alabama. The majority
of the Company's products are sold to contractors, subcontractors and
building materials dealers located principally in these states who
provide building materials for the construction of residential,
commercial and industrial buildings and swimming pools. The level of
construction activity is subject to population growth, inventory of
available housing units, government growth policies and construction
funding, among other things. Although general construction activity has
remained strong in the Southeastern United States during the last
several years, the duration of recent economic conditions and the
magnitude of their effect on the construction industry are uncertain
and cannot be predicted.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
This Form 10-Q contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of the Company, and its subsidiaries, including statements
made under Management's Discussion and Analysis of Financial Condition
and Results of Operations. These forward looking statements involve
certain risks and uncertainties. No assurance can be given that any of
such matters will be realized. Factors that may cause actual results to
differ materially from those contemplated by such forward looking
statements include, among others, the following: realization of tax
benefits; impairment of long-lived assets, including goodwill; the
outcome of litigation; the competitive pressure in the industry;
general economic and business conditions; the ability to implement and
the effectiveness of business strategy and development plans; quality
of management; business abilities and judgment of personnel;
availability of qualified personnel; and labor and employee benefit
costs.
These risks may not be exhaustive. The Company operates in a
continually changing business environment, and new risks emerge from
time to time. We cannot predict such risks nor can we assess the
impact, if any, of such risks on our business or the extent to which
any risk, or combination of risks may cause actual results to differ
from those projected in any forward-looking statements.
19
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Results of Operations
---------------------
Nine Months and Three Months Ended September 30, 2002 Compared to 2001
----------------------------------------------------------------------
Net Sales for the nine months and three months ended September
30, 2002 decreased $2,906,000 and $133,000 or approximately 9.5% and
1.4%, respectively compared to the same periods in 2001. The closure of
certain under-performing distribution facilities, and the elimination
of installation services and sales of gypsum wallboard at certain
locations during 2001, accounted for the principal amount of the sales
decline in the nine months and third quarter in 2002 compared to the
same periods in 2001. The closure of the under-performing operations in
2001 accounted for $2,080,000 and $304,000 of the sales decline in the
nine months and third quarter 2002 comparable periods, prior to giving
any consideration to the elimination of gypsum wallboard at certain
other locations, including the Company's distribution location in
Pensacola, Florida, which was closed in the third quarter of 2002.
Third quarter sales were also adversely impacted by an unusual large
amount of rain in September in certain of the Company's markets on the
Gulf Coast due to the threat of a hurricane and resulting tropical
storm which slowed construction and consequently reduced demand for the
Company's products during the month.
Gross profit as a percentage of net sales for the nine months
and three months ended September 30 of 2002 was approximately 31.5% and
31.6%, compared to 31.2% and 32.8% for the same periods in 2001. The
comparative gross profit margins for the 2002 and 2001 periods reflect
similar competitive conditions in the Company's markets for the sales
of both its manufactured and distributed products. The Company
increased its sales force in early 2002 to further its efforts to
promote the sales of its higher gross profit margin manufactured
products to the end-user and decrease reliance on sales of lower gross
profit margin gypsum products.
Market prices for gypsum wallboard, a major product line
purchased and sold by the Company's distribution operations, were
believed to be slightly higher in the nine months ended September 30,
2002 compared to the average prices realized for the same period in
2001. The trend of lower gypsum wallboard pricing, which commenced in
early 2000 and continued for six consecutive quarters through the first
six months of 2001, has rebounded to a certain extent from the
historically low levels during the third quarter ended September 30,
2001. During that quarter, certain
20
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Nine Months and Three Months Ended September 30, 2002 Compared to 2001
----------------------------------------------------------------------
(continued)
manufacturers reduced production of gypsum wallboard and a stronger
demand for gypsum wallboard resulted in increased gypsum prices in the
latter part of 2001, although at still significantly reduced prices
from historical levels prior to 2000. The Company is unable to
determine if the improvement in prices will trend higher or even be
maintained at current levels, during the remainder of 2002.
Selling, general and administrative expenses as a percentage
of net sales for the nine months and third quarter of 2002 were
approximately 28.3% and 28.0%, compared to 28.0% and 29.0% in 2001.
Selling, general and administrative expenses decreased $725,000 and
$138,000,or approximately 8.5% and 5.0% in 2002, compared to the same
periods 2001. The decrease in expenses was primarily due to a reduction
in operating costs associated with closing under-performing
distribution locations and Company-wide reductions in manpower to gain
improved operating efficiencies, which took place during 2001.
During 2001 the Company took action to improve operating
performance of the Company's distribution locations through: (i) an
approximate 32% reduction in workforce;(ii) closure of under-performing
distribution locations in Hattiesburg, Picayne and Pascagoula,
Mississippi; (iii) elimination of installation services at two
additional locations; and (iv) development of a consolidated purchasing
program in an attempt to realize greater savings from the purchase and
resale of products.
Interest expense decreased $243,000 and $62,000 in the nine
months and third quarter of 2002, or approximately 37.6% and 31.5%,
compared to the same periods in 2001. The decrease in interest expense
in the 2002 periods was primarily due to a lower average amount
outstanding under the Company's line of credit as a result of closing
the distribution facilities in 2001, the payment of the Company's
debentures at December 31, 2001, which had an effective annual interest
rate of 16%, and lower interest rates under its variable rate
borrowings. Miscellaneous income for the nine months ended September
30, 2002, included insurance refunds of approximately $95,000 as a
result of lower claims than provided for in the underlying insurance
policies.
After giving effect to the above factors, the Company
generated income before taxes and the write-off of goodwill, as
discussed below, for the nine months and third quarter ended September
30, 2002 of $677,000 and $235,000, respectively, compared to $448,000
and $228,000, for the same periods in 2001.
21
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
------------------------
The net loss for the nine months ended September 30, 2002
includes the impact of a $1,272,000 ($789,000 net of related tax
benefit) non-cash goodwill impairment charge. The charge is related to
the Company's required adoption of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets". The
goodwill impairment charge is a one time event and does not affect the
operating results of the Company. The Company doesn't have any
remaining goodwill on its balance sheet which may be impaired for
future periods. The impairment of goodwill is attributable to the
under-performance of the Company's distribution operations associated
with the acquisition of certain building materials distributors in
2000. In accordance with SFAS No. 142, the Company reflected this
impairment charge in its nine month financial results as a cumulative
change in accounting principle.
In the nine months and third quarter of 2002, the Company
recognized an income tax benefit of $112,000 and an expense of $82,000,
respectively, compared to tax expense of $166,000 and $89,000 for the
same periods for 2001.
As a result of the above factors, the Company had a net loss
of $483,000 and net income of $153,000, or a loss of $.05 per fully
diluted share for the nine months, and earnings per diluted share of
$.02 for the third quarter of 2002, compared to net income of $282,000
and $139,000,or $.03 and $.02 per share, for 2001.
Liquidity and Capital Resources
-------------------------------
Sources and Uses of Cash
------------------------
The Company's operations provided approximately $808,000 and
$722,000 of net cash from operations in the first nine months of 2002
and 2001, respectively. In the first nine months of 2001 the Company's
net cash flow benefited from the closing of certain under-performing
distribution operations and elimination of installation services, which
had the effect of reducing receivables and inventory formerly
attributable to those operations. As a result, the Company realized a
net increase of only $164,000 in receivables and inventory in the 2001
period, compared to an increase of $706,000 in 2002.
During the first nine months of 2002, the net expenditures for
investing activities were $267,000 compared to $115,000 in 2001. The
purchase of equipment to up-grade the Company's manufacturing equipment
and to expand and up-grade the Company's delivery capabilities
accounted for the majority of the 2002 expenditures.
During the nine months ended September 30, 2002, the line of
credit balance decreased approximately $53,000. The Company made
principal payments on other debt totaling $556,000 during the first
nine months of 2002. In addition, the Company
22
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
Sources and Uses of Cash (continued)
------------------------
incurred additional long-term debt of $210,000 to finance the major
portion of its capital expenditures.
Future Commitments and Funding Sources
--------------------------------------
At September 30, 2002, the Company's contractual cash
obligations, with initial or remaining terms in excess of one year,
remained generally unchanged compared to December 31, 2001 except for
the items described more fully in the following paragraph. See Notes 6
and 10 in the accompanying financial statements for additional
information regarding the Company's commitments.
At September 30, 2002, the Company had working capital of
approximately $1,860,000 compared to working capital of $2,480,000 at
December 31, 2001. The net reduction in working capital was primarily
attributable to the reclassification of appraisal rights obligation
($877,000) and a mortgage note ($204,000 due June 2003) from long-term
debt at December 31, 2001 to a current liability at September 30, 2002.
As of September 30, 2002, the Company had cash and cash
equivalents of $1,510,000, which included customer payments in the
amount of $770,000 that are required to be remitted to the Company's
commercial lender upon their bank clearance under the terms of the
Company's line of credit. Upon remittance of such amount, the
outstanding balance of the line of credit will be reduced by such
amount and will increase the availability for the future borrowing. The
Company has implemented a cash management program in an attempt to gain
a more rapid clearance of customer payments deposited in its bank
accounts.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $6,000,000 line of
credit with a commercial lender. The maturity date of the line of
credit is June 19, 2003, subject to annual renewal. Premix, Acrocrete
and Just-Rite borrow on the line of credit, based upon and
collateralized by, their eligible accounts receivable and inventory.
Generally, accounts receivable outstanding more than 120 days are not
eligible under the agreement. At September 30, 2002 the line of credit
available for borrowing based on eligible receivables and inventory
aggregated to $5,152,000, of which $4,282,000 was outstanding.
Trade accounts receivable represent amounts due from
sub-contractors, contractors and building materials dealers located
principally in Florida, and the Southeastern States who have purchased
products on an unsecured open account basis and through Company owned
warehouse distribution outlets. As of September 30, 2002, the Company
owned and operated eleven
23
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
distribution outlets. Accounts receivable, net of a $491,000 allowance,
at September 30, 2002 was $4,858,000 compared to $4,419,000 (net of a
$453,000 allowance) at December 31, 2001.
As a result of the consummation of the December 31, 1998
merger, among other things, the Company agreed to pay $733,000 in cash
to the former preferred shareholders and issued $985,000 face value
Debentures due December 31, 2001. Amounts payable to such shareholders
at September 30, 2002 on the Company's consolidated balance sheets of
$262,000 results from certain former preferred stock holders continued
non-compliance with the conditions for payment.
Holders representing 81,100 preferred shares have elected
dissenter's rights, which under Delaware law, would require cash
payments equal to the fair value of their stock, as of the date of the
merger, to be determined in accordance with Section 262 of the Delaware
General Corporation Law. The Company has recorded a liability for each
share based on the fair value of $2.25 in cash, an $8.00 Subordinated
Debenture and five shares of the Company's common stock since that is
the consideration the dissenting holders would have received if they
did not perfect their dissenters' rights under the law. Dissenting
stockholders filed a petition for appraisal rights in the Delaware
Chancery Court on April 23, 1999. A trial for the appraisal rights was
held in the Chancery Court of Delaware in June 2002. As of the date
hereof, the trial court has not issued a ruling. The Company expects a
judicial determination requiring the Company to make payment to the
Dissenting Shareholders in the second quarter of 2003.
The Company presently is focusing its efforts on building
market share for the sale of its manufactured products, reducing costs
and expenses and improving working capital. The Company expects to
incur various capital expenditures during the next twelve months to
upgrade and maintain its equipment and delivery fleet to support
operations and for the recent opening of a distribution facility in
Port St. Lucie, Florida. In addition, the Company is implementing an
upgraded centralized management information system for its distribution
operations. Capital needs associated with these capital projects cannot
be estimated at this time, but management does not expect the cash
portion of the expenditures for these projects to exceed $150,000
during the twelve months subsequent to September 30, 2002.
24
Item 2 Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
The Company believes its cash on hand and the maintenance of
the borrowing arrangement with its commercial lender will provide
sufficient cash to meet current obligations for its day-to-day
operations and support the cash requirements of its capital expenditure
programs. However, the ability of the Company to maintain and or
improve its liquidity is primarily dependent on the Company's ability
to increase profitable operations, to obtain its projected cash flow
and resolve its outstanding appraisal rights litigation on a basis
favorable to the Company. The Company will be required to obtain
additional financing to fund the resolution of such litigation expected
in the second quarter of 2003. While the Company does not presently
have arrangements for such sources of financing, the Company believes
that it will be able to obtain the necessary financing through
additional borrowings from its current lender, and/or banks and others
through the issuance of debt or equity. Such financing may be dilutive
to existing shareholders. There can be no assurance such financing will
be available on terms reasonably satisfactory to the Company. The
inability to obtain such financing could have a material adverse effect
on the Company's future operations and financial performance.
Item 3 Market Risks
------------
Residential and Commercial Construction Activity
------------------------------------------------
The Company's sales depend heavily on the strength of
residential and commercial construction activity in the Southeastern
United States. The strength of these markets depends on many factors
beyond the Company's control. Some of these factors include interest
rates, employment levels, availability of credit, prices of raw
materials and consumer confidence. Downturns in the markets that the
Company serve or in the economy generally could have a material adverse
effect on the Company's operating results and financial condition.
Reduced levels of construction activity may result in intense price
competition among building materials suppliers, which may adversely
affect the Company's gross margins.
The Company's first quarter revenues and, to a lesser extent,
its fourth quarter revenues are typically adversely affected by winter
construction cycles and weather patterns in colder climates as the
level of activity in the new construction and home improvement markets
decreases. Because much of the Company's overhead and expense remains
relatively fixed throughout the year, Company profits also tend to be
lower during the first and fourth quarters.
25
Item 3 Market Risks (continued)
------------
Exposure to Interest Rates
--------------------------
The Company has two variable rate mortgages totaling $424,000
at September 30, 2002. The mortgages bear interest at prime plus 1% and
are due October 2004. In addition, the Company's $6,000,000 line of
credit from a commercial lender bears an interest rate of prime plus
1/2%. A significant increase in the prime rate could have a material
adverse effect on the Company's operating results and financial
condition.
Item 4 Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit, is recorded,
processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms.
Our Chief Executive Officer/Chief Financial Officer has
evaluated our disclosure controls and procedures as of November 13,
2002 and believe they are in effect.
Changes in Internal Controls
----------------------------
Not applicable.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
-----------------
See notes to Consolidated Financial Statements, Note 10 (a),
set forth in Part I Financial Information.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its 2002 annual meeting of shareholders on
July 19, 2002 (the "Annual Meeting").
(a) At the Annual Meeting, the Company's shareholders voted on the
election of one Class I director as follows:
For Witheld
--- -------
Howard L. Ehler, Jr. 6,713,606 405,197
(b) The Company's proposal for a one for five reverse stock split
("Reverse Stock Split") was approved by the Company's
Shareholders at the Annual Meeting by the following votes:
For: 6,309,797
Against: 771,090
Abstain: 37,916
Not Voted: 2,101,631
The Board of Directors reserved the right to delay the Reverse
Stock Split for up to twelve months following stockholder approval. The
Board of Directors has determined it was in the best interest of the
Company to postpone the implementation of the Reverse Stock Split until
a future date to be determined by the Board.
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information - continued
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit
No. Description
- ----- ----------------------------------------------------------------------
2.1 Agreement and Plan of Merger, by and between Imperial Industries, Inc.
and Imperial Merger Corp. dated October 12, 1998 (Incorporated by
reference to Form S-4 Registration Statement, Exhibit 2).
3.1 Certificate of Incorporation of the Company, (Incorporated by reference
to Form S-4 Registration Statement, Exhibit 3.1).
3.2 Amendment to Certificate of Incorporation of the Company (Incorporated
by reference to Form 10-K dated December 31, 2001, Exhibit 3.2).
3.3 By-Laws of the Company, (Incorporated by reference to Form S-4
Registration Statement, Exhibit 3.2).
10.1 Consolidating, Amended and Restated Financing Agreement by and between
Congress Financial Corporation and Premix-Marbletite Manufacturing Co.,
Acrocrete, Inc. and Just-Rite Supply, Inc. dated January 28, 2000.
(Incorporated by reference to Form 10-K dated December 31, 1999, File
No. 1-7190, Exhibit 10-1).
10.2 Employee Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.4).
10.3 Directors Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.5).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on it behalf by
the undersigned thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
By: /S/ Howard L. Ehler, Jr.
--------------------------
Howard L. Ehler, Jr.
Executive Vice President/
Principal Executive Officer
By: /S/ Betty Jean Murchison
---------------------------
Betty Jean Murchison
Chief Accounting Officer/
Assistant Vice President
November 13, 2002
29